Saturday, January 3, 2015

Past follies: JetKing InfoTrain

In Q4 FY 2010 my research led me to believe this was a value stock - but it turned out to be a value trap. 

Key learning is: 
  • NUMBERS are dangerous if not coupled with business analysis and reality.
    • Return on invested capital is important but cannot form the ONLY basis for an investment
    • Growth of a company's revenues is not just Return on capital multiplied by reinvested % of earnings. The company's business plan and ability to grow is a bigger factor. ROIC x reinvestment% can be used just as a max on the growth.
  • COMPETITION: Always look at what the competition is doing. 
    • Jetking got undone by universities rather than training institutes like itself. People prefer a degree because the employ-ability of a degree is far higher than some course.
    • The starting salary of a JetKing Graduate was pretty low and continued to be low which would mean that sustaining margins would have been challenging.
  • NO CHECKLIST: Led to missing crucial details:
    • Top management salary in FY2009 was 1.8Cr+ on a revenue of 48Cr. This is always a bad sign
    • TTM earnings in Dec 2009 were already below the last 7 quarter's earnings and should have been read as a warning sign. 
After the fact early detection could have been done:
  • By Dec 2010 the TTM revenue was also below the previous 11 quarters. It should be been read clearly as a writing on the wall.